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Optimism, Pessimism & Recession Depression

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54 Comments

With the world of economic news awash in negativity, how is everyone feeling out there?  Does the Vancouver real estate crash have you feeling down? Are you concerned about your bank account or retirement options?

Depending on your current situation you may feel either depressed or optimistic about the direction our local economy is going.  On one hand the current real estate correction is a strain on those who are over-leveraged and need to sell, on the other hand dropping home prices are a positive development for those that have been ‘priced out’ of the market.

I assume that everyone reading this site is interested in purchasing real estate, but only when it makes sense to them personally.  What factors will you use to figure out if you’re financially and emotionally ready to enter the market, and are you ever concerned that your optimism or pessimism are habitual rather than rational?  Is it time to buy, or is it time to sell and cut losses?

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mousie

I agree with #1. I think it sums it up. High cost of housing is bad for society. It made me think of fleeing, it made me not wanting to spend, it made me uncertain of the future. So what do one do? One gets into the prepare for disaster mode: spend as little as possible, get rid off stuff, be prepared to move on a short notice, and be very careful of whom you may trust. Apparently I could not trust the media, the blingy realtors, the government, or banks. So, being observant, making own sense out of the mess, I had to rely on my own gut, logic, thinking. Nobody I knew had gotten any raises, so how can housing keep going up like this? The media did not say anything that would make the equation work, searched… Read more »

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patriotz

We're talking about unemployment all right. Just pay attention to the posts.

I lost my own job in 1982, so I've never thought "it could never happen to me".

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Warren

Why is nobody here talking about unemployment? It doesn't matter if you are a bear or a bull, losing your job, and maybe not finding another one for months are going to seriously impact your ability to pay your mortgage or keep your down payment savings intact. Everyone seems to think "it could never happen to me".

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patriotz

dan:

At least when/if your home goes down in value 50%, you still have a home to live in, not just a piece of paper saying you own a home.

What you have is a piece of paper that says you "own" a house worth, say, 300K, and another piece of paper that says you owe the bank 600K on which you have to pay interest for decades.

To stay in that house, you have to pay the bank twice as much as to rent the same house.

You don't really own anything. The bank owns you.

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dan

Personally, I have a 2.5% interest rate on my 5 year fixed rate, closed term mortgage, so it is possible… but I didn't just walk off the street and get that and understand that rate might not be possible for everyone. My examples were over simplified. There are so many things to consider if it's the right time to buy. Inflation and higher rates do put pressure on real estate prices, but after it normalizes, I think higher inflation and higher rates actually deliver a benefit to those who have mortgages since home prices catch up with the inflation (historically), but the amount you owe on your mortgage doesn't. Nobody can predict where prices will be exactly in 1, 5, or 10 years. If I had to guess, I'd say in 1 year they will be down. I wouldn't even… Read more »

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Noname

If you pay $2100 per month for 5 years, what difference it makes whether you call $45K interest or $100K interest? The only thing matters is the outstanding balance of your mortgage after 5 years because you simply paid $2100X60=$126K. There is no way anyone can get a mortgage at 2.5%, even variable. The best 5 year rate you can get now is 3.7%. The best 10 year rate you can get is 5%.

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ella

I'm no goldbug, but I feel like one world currency is a TERRIBLE idea. Not that terrible ideas have been stopped before…

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blueskies

China calls for new reserve currency

http://tinyurl.com/ch4skl

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blueskies

China has put in a proposal to the IMF for a world currency?

China + Amero = Chimero

we are joined at the hip!

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ella

Is it only an internet rumour or is it true that China has put in a proposal to the IMF for a world currency?

!

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mino3

It’s as elementary as not noticing a typo on my excel sheet. Guess you haven’t done that before.

Nope. When I accuse someone of being "way off" I make sure that I'm not wrong myself. I double check the numbers before posting them. It's quite easy to notice something that is off by a factor of 5.

But hey, keep doing your thing, it makes us laugh.

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Raven

"Yeah, mino3, you slickster. How dare you correct her. She’s always right!!!!"

YEAH! You tell him good.

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Raven

"Retraction or not, it’s such an elementary mistake… wow."

It's as elementary as not noticing a typo on my excel sheet. Guess you haven't done that before.

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ella

I don't know where to put this bit of news, since the friday free for all is so full now.

I believe there was some discussion yesterday about silly pessimistic bears and the stock market? Remember the "pity party".

Well, bears, looks like the chief investment strategist at Bank of America agrees with you:

"Investors should sell bank stocks after they rallied 12 percent today because the Treasury Department’s plan to buy toxic assets won’t stop profits from dropping, Bank of America Corp.’s Richard Bernstein said….Removing devalued loans and securities from banks’ balance sheets is a short-term solution that will delay the problem’s ultimate solution"

More here:

http://www.bloomberg.com/apps/news?pid=20601087&a…

Guess I should have called him the ex-chief investment strategist at Bank of America. Surprise, surprise, he got fired after saying that.

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mino3

Yeah, I started replying, got distracted, then finished the reply and saw the 'retraction' after submitting my comment.

Retraction or not, it's such an elementary mistake… wow.

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ella

"You think you’re so slick pointing out my error after I already caught it?"

Yeah, mino3, you slickster. How dare you correct her. She's always right!!!!

"I guess you’re mostly here for comic relief…"

OK, this thread did make me laugh. How nerdy is it to laugh at a housing bubble blog? Quite nerdy, oh dear.

😳

_____________

Raven, sometimes people post things before refreshing their page. Careful, your chip is showing.

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Raven

Mino3, I already caught my mistake and issued a mea culpa to Dan & Patriotz one post before yours.

You think you're so slick pointing out my error after I already caught it?

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mino3

Raven, you're obviously trolling. Regardless of interest rates, $2100/month for 5 years amounts to $126,000 worth of payments. How do you figure having made $205,000 worth of payments? (196k principal and 9k interest) Also, you're reading the amortization schedule wrong. $8595 in interest is for the 5th year ONLY. Add up years 1-5 and you do get 45k. Same goes for Scenario 2, $19k is for 5th year ONLY, the actual 1-5 total is 100k. And you're supposedly RE-savvy? Dan's math is correct. He said he was making $2100/mo payments into a 400k/25yr/2.5% mortgage, which means he's paying $2100 to service a $1792 mortgage payment, basically making accelerated payments. That does work out to $318k/45k just like he said. His second scenario checks out too (this time $2100 is the full mortgage payment). I guess you're mostly here for comic… Read more »

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Raven

Dan & Patriotz,

Oops! I mucked up on the calculations, caught the error. Dan's calculation with 2.5% is correct.

Beg your pardon.

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Raven

Patriotz:

"You forgot to complete Scenario 1:

After 5 years you have to renew at 7%. You now have 20 years to pay the balance of $318K. You will be paying more than Scenario 2 for the next 20 years, because he has a balance of only $273K at the same interest rate."

Dan's math skills is as bad as yours. Using his Scenario 1 calculated correctly, after 5 yrs his principal balance would be $204,530, about $68K less than Scenario 2.

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Carioca Canuck

"What factors will you use to figure out if you’re financially and emotionally ready to enter the market"

When spending 6 figures there is no room for emotion to enter the calculation. It is just shelter after all, and there are more important things in life to spend one's money on…..so, on to the next part of the question.

Financially speaking, when I can amortize the entire purchase over 10 years to a zero balance and my total monthly expenditure (P+I payment, taxes, utilities, insurance, condo fees, etc) does not exceed $1,750 per month after a $50K down payment. So, that means either a $200K house or a $175K condo……..

Note to readers, I already own property out of the country, and have no plans on buying in Canada before retirement (I am 48 and outta here by 55).

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Raven

Dan: "Prices still have some room to fall. Weighing that against the low interest rates of today (eg. 2.5% is possible right now with excellent credit), a lot of people might see that it makes sense to buy." I'm a prime borrower and I can't get that. The best they give is 1.40% off the posted 5yr, which is 4.15% right now. Most, if not all variable mortgages are prime plus X% so using 2.5% (which is currently prime) is not realistic for most people. "3. Consider the following mortgages with the same monthly payment of $2100: Scenario 1: $400K 25 yr mortgage at 2.5% rate = $318K balance after 5 years and you will have paid $45K in interest." Your calculation is way off. A $400K mortgage 25 yr = $1792/month. If you're paying $2100/month, your principle balance is… Read more »

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ella

"Patriotz beat me to it WWII definately helped the US get out of depression but it won’t work thi time."

Hopefully nobody took what I said to mean that I think going to war is a good or smart strategy. It's a terrible idea.

I just noted that it's being floated as a solution. And that's scary!

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ella

"But the US is an entirely different place today than it was in 1941, and so is the rest of the world. It was then the world’s biggest creditor, had a huge and underutilized industrial capacity, and was the world’s biggest producer and exporter of oil. All the complete opposite of today." Yes, you're totally right. China is just very recently beginning to act like a creditor, publicly encouraging the US to make good on its debt. Whereas China used to encourage the US to keep borrowing, in order to keep buying Chinese imports. That's such a shift in global power. It's all because China lost a ton in Fanny & Freddy last year. I'm going to admit it: even though I've been following this housing bubble story for a few years, I still cannot believe how deep this housing… Read more »

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other ted

Patriotz beat me to it WWII definately helped the US get out of depression but it won't work thi time. I will add some points to this. After WWII the defeated country was Germany the most technologically advanced of its day. The allies carved up and looted Germany to pay for the war. I read in school that the USSR disassembled entire factories and took them back. What was not told was that the US and the UK did the same. Merk pharmaceutacils is a German company and a US company. Merk US was taken as compensation for the war. Patents that were German were taken over by the US. In some cases they had to get the german scientists to explain the patents. Just look up operation paper clip. Today there isn't a country that rich that they can… Read more »

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